Dealing with Friction: EU-UK Trade and the Irish Economy after Brexit

Thomas Conefrey and Graeme Walsh
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Thomas Conefrey: Central Bank of Ireland

Quarterly Bulletin Articles, 2020, 87-105

Abstract: Following the UK’s exit from the EU on 31 January 2020, negotiations have commenced to determine the nature of its economic and trading relationship with the EU in the future. The latest information indicates a UK preference for a Free Trade Agreement (FTA) with the EU after Brexit. This Article examines the possible impact on the Irish economy of an EU-UK FTA. The analysis finds that an orderly move to a FTA would result in smaller upfront losses than associated with a disorderly no-deal Brexit, but a basic FTA would still imply significantly higher trade frictions than exist today. We estimate that a transition to an EU-UK FTA after 2020 would lower Irish output by around 3.5 per cent in the long run. A more comprehensive EU-UK agreement than the FTA we model would reduce these losses. In contrast, if the UK moves to trading on WTO terms after 2020 this would lead to a larger decline in Irish output of over 5 per cent. Whatever the precise nature of any future deal, no arrangement will replicate the degree of trade and economic integration of EU membership, creating significant challenges for exposed sectors, particularly agri-food. As more details emerge as to the ultimate EU-UK trading relationship after Brexit, further analysis will be required to estimate the impact on the Irish economy.

Date: 2020-02
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